Healthcare is a highly regulated and scrutinized industry. With billions of dollars in Medicare payments made each year you can imagine the federal government is serious about ensuring all those payments were appropriate; especially in light of instances where providers have been caught defrauding the Medicare program.

With the Medicare Modernization Act of 2003 came the Recovery Audit Contractors or RAC audits. The US Congress ordered a 3 year demonstration project to begin in 2005 to identify improper payments made to providers under Medicare’s fee for service program in 3 states; Florida, California, and New York. The program was expanded to include Massachusetts and South Carolina. At the end of the demonstration the RAC auditors had recovered nearly $694 million. The program became permanent January 1, 2010 under Tax Relief and Health Care Act of 2006 and was rolled out to all 50 states.

For the purposes of the RAC the country is divided into 4 jurisdictions (A-D) and contracts are awarded to each one. Region A is audited by Diversified Collection Services, CGI audits Region B, Connolly Inc., Region C, and Health Datasights Region D.

The RAC audits are focused reviews centering on specific services. RAC contractors submit requests for patient records to providers. The contractors can request records for dates of services up to 3 years prior. The contractor’s auditors review the records to verify if the services rendered were medically necessary. Does the record substantiate the services the provider billed Medicare? If as a result of their review the auditors deem the services either not medically necessary or not sufficiently substantiated payments are taken back from the provider. The provider is afforded an appeal the money however is recouped even if the particular encounter is under appeal.

The principle concern for providers is that RAC contractors are paid based on a percentage of payments recovered. In light of that would it appear that there may be an unfair incentive and potential bias when reviewing records?